EU finance regulators may find it necessary to classify cryptoassets as intangibles for prudential reasons, according to a new paper from the European Central Bank (ECB). Published on 17 May, the paper has stemmed from a detailed and thorough investigation of novel financial products by the ECB’s Internal Crypto-Assets Task Force (ICA-TF). In its analysis of risks and regulatory gaps, the paper points out that “incipient, yet growing” crypto-brokerage and post-trade services for institutional investors may lead to increased exposures. However, it says: “Currently, the means to address these potential risks from a prudential perspective are lacking. There is no identified prudential treatment for cryptoasset exposures of financial institutions, whether direct investments, derivatives, or indirect investments.” Indeed, it stresses, clarifying the optimal accounting treatment for cryptoassets could lead to “a more conducive environment” for the creation of such investments. As exposures do not yet pose systemic risks, the Task Force argues that the treatment must be decided sooner rather than later. As such, the paper suggests, classifying cryptoassets as intangibles under IAS 38 would automatically mean they would be deducted prudentially. It notes: “Accounting standard setting bodies/authorities could pursue a harmonised accounting treatment by prescribing that banks should account for cryptoassets as intangible assets. Other accounting treatments (for example, cash, FX position or commodities) would result in alternative prudential treatments under the market risk framework of the Capital Requirements Regulation that are not fully suited to capture the volatility of cryptoassets.” Read the full paper here.
A brains trust of major players from the banking, logistics and commodities sectors has come together to launch a groundbreaking trade finance technology project called Forcefield. Unveiled on 17 May, the initiative aims to make it easier for parties to commodities trades to monitor the progress of inventories, which are often used as collateral for loans. As such, it takes the form of a digital platform that tracks on-the-move stocks by picking up data from Internet of Things sensors and near-field communication chips attached to the goods. Over the past 12 months, Forcefield has been funded and developed through a successful proof-of-concept phase, with professional services firm Accenture as the primary technology provider. Other brands in the project consortium include ABN AMRO, Anglo American, CMST International, Hartree Partners, ING Bank, Macquarie, Mercuria and OCBC Bank, with Allen & Overy acting as legal adviser. The backers have now established Forcefield as an independent company to finalise deployment as a market utility, with an eye on mass adoption. Currently focused on refined metals, the system will expand to encompass other dry-bulk commodities. Allen & Overy Paris counsel Tom Longmuir said: “Forcefield is a commodity trading first, and is intended to mitigate systemic industry risks… through innovation. It will do this by implementing a blockchain-based title and traceability concept in relation to physical supply, moving trading and financing away from paper-based to electronic systems.” ABN AMRO Trade & Commodity Finance managing director Karin Kersten added that Forcefield “will strengthen the entire commodity trading supply chain. Parties involved will benefit from more effective controls, greater efficiency, transparency and traceability”.
Some 43% of UK firms have received fraudulent duplicate invoices, while 31% have fallen victim to contract bid rigging, according to a new report from analytics software provider SAS. The illegal practices are two, classic types of procurement fraud. In its report – entitled Unmasking the Enemy Within – SAS notes that procurement fraud “is one of the most common and insidious forms of fraud an organisation can encounter”. Indeed, it points out: “Since 2014, PwC has listed it as the world’s second most commonly reported economic crime, ranking above bribery, corruption and cybercrime.” With that in mind, SAS’s continuous controls and fraud manager, Laurent Colombant, has issued a set of tips that businesses should adopt to safeguard themselves against procurement fraud: 1. Recognise the risk “One reason procurement fraud is so prominent but so little talked about is that too many assume its impact is small. A third of companies don’t consider it important enough to include it in their auditing processes. However, fraud can occur at any stage of the procurement process or during any point of the supplier relationship. One general audit a year won’t be enough to stay on top of it. Organisations should follow a regime of continuous end-to-end controls of the entire procure-to-pay chain, with constant detection processes and regular audits.” 2. Consider your culture “Many companies struggle to tackle procurement fraud due to a lack of internal awareness and communication. Departments don’t collaborate, data is siloed and the processes aren’t in place for easy data sharing. There must be a designated fraud leader within the organisation. Even dedicated employees will miss signs and make mistakes, so appoint someone whose sole responsibility is to detect and resolve fraud.” 3. Identify improvements “Too many organisations rely on outdated technologies and methods of fraud detection, including rules-based software and manual controls. It’s up to businesses to regularly review and assess current detection mechanisms and allocate budget where improvements can be made. To do this, it’s also crucial to spot problems that could frustrate future tech adoption, whether it’s a lack of skills or disconnected data silos.”
London has lost its leading finance-centre crown to New York, according to research from corporate advisory firm Duff & Phelps. In a poll of 180 senior figures in the fields of private equity, asset management, hedge funds, banking and brokering, the organisation found that just 36% currently see London as the world’s top financial hub: a 17% drop on results from last year. Meanwhile, 52% of respondents rate New York as the planet’s foremost financial hotspot: a 10% rise on the city’s standing in 2018. Asked to predict how the picture will look in five years’ time, respondents’ confidence in London returning to the top spot was hardly glowing. Only 21% thought that London would reign in 2024. However, confidence in New York’s ability to hold on to its place was much stronger, at 44%. A 12% segment picked Hong Kong as the number one city of the near future, indicating that some senior finance professionals are anticipating an ‘Age of Asia’, while toning down their outlook for the UK capital through the years when it will be attempting to adjust to life after Brexit. Duff & Phelps managing director, compliance and regulatory consulting, Monique Melis said: “Brexit has cast a shadow of uncertainty over the UK’s world-class financial sector and its ability to dominate other major financial hubs in the coming years. Looking ahead, we see the combined effects of Brexit and the emergence of Asia, with respondents expecting Hong Kong to play a bigger role as a leading global financial centre.”
Sustainable investment advocacy group the Climate Bonds Initiative has approved Deloitte Germany as an official verifier of green bonds and their issuers. On the basis of the auditor’s recommendations, eco-conscious investors with links to the German market will be able to make informed, confident choices about which financial products to purchase, and which related green projects to support. Under the guidance of the Climate Bonds Standard, the auditor will provide verification services across a variety of clean-technology sectors in Germany, including the solar, wind, geothermal, water-infrastructure, forestry, marine-renewables and low-carbon transport, and building industries. It will also focus on waste management, bioenergy and hydropower. Deloitte Germany director, audit and assurance, Philipp von Websky said: “The link between sustainability and finance is getting stronger at an impressive pace [and] the notion that a sustainable investment strategy can also be rewarding in financial terms is growing… We are looking forward to accompanying this segment of paramount importance by contributing quality and trust, combining our best experts from the sustainability and capital markets sides in one team.” The news emerged just days after Asoka Wöhrmann – head of Deutsche Bank investment arm DWS – told Reuters that ESG investment principles will “roll towards asset managers like a tsunami. Those who are not prepared will miss the trend”.